Steemit Crypto Academy Contest / SLC S22W6 : Volatility Trading
Hello everyone, I hope you all are doing well. I am here to share my participation for Steemit learning challenge season 22 week 6. I hope I will answer all the questions in detail.
These volatility indicators play a vital role in predicting market conditions. It help traders making proper assignment of the market by studying thoroughly the market insights. Let talk about all these indicators one by one and explain their role.
Bollinger Bands
Bollinger band is a too much easy indicator to be used. It has 3 bands; upper band, lower band and middle band or average line. The middle band give us a 20 days average data of the market. Upper band shows us over bought conditions (sell signal), and lower band indicates over sold conditions ( buy signal). Let’s apply it on steem price chart.
STEEM/USDT 15 minutes chart.
Steem was trading at 0.2164 touching the upper band, which indicates overbought region ( sell signal). A sell signal hit the target with 1:2.
Average True Range (ATR)
This indicator is specifically made for finding the market volatility. If ATR is high it indicates high volatility, low ATR means market is less volatile or in consolidation phase.
STEEM/USDT 1 hour chart.
The current STEEM/USDT ATR is 0.028 which is normal, not too much volatile. Our daily daily ATR mostly we use for Take profit and stoploss. 2x ATR is our safest stoploss, and 1ATR we keep our take profit.
Historical Volatility
This indicator is use to predict the upcoming market movement based on past market volatility. If market is going upside sharply and historical volatility is also increasing, it indicates the upside move is real and we can predict upside trend in future. The same if market is going down sharply and historical volatility is increasing, it’s a confirmation of market further down move.
STEEM/USDT 1 Day chart.
This is Steem/Usdt one day time frame chart. Historical volatility shows steem has gone through a high volatility zone, both the price and historical volatility has shown a huge pump in it’s values. In past few days Steem price is declining, same is historical volatility graph too, indicating a trend reversal. It shows the down side move maybe fake.
Range bound strategy means trading an asset with in a given range by identifying it’s key levels, i.e Support and resistance. Let’s go through STEEM/USDT real chart and try to make a best trading strategy for steem.
Identifying Support and Resistance Levels
These are the too much important levels in trading, almost all the traders trade base on it when they do their technical analysis. Support means, the price will go upside if it comes to this level and resistance means price will shows rejection if it tap this level. Let’s go through STEEM/USDT chart and identify the it’s major supports and resistance levels.
STEEM/USDT 4 hours time frame chart.
These are the major support and resistance levels of Steem. The blue lines are support and red lines are for resistance. Steem has broken 0.2363, it’s major support and now trading below it. This support has now became resistance for steem. We have two possibilities now here; one if the price break 0.2363 level, our next target would be 0.30(a strong resistance). If price show rejection from here, our target will be 0.177 (next major support).
Identifying Support and resistance using 50 days moving Average.
On 50 days moving average Steem is under resistance level. If this 4 hours candle give closing above 50 days MA level, we can predict price may break our resistance at 0.2363.
Identifying Support and resistance using Fibonacci Retracement.
Fibonacci have three golden levels, which works too much works too much accurately when it comes to find support and resistance levels, and they are 0.61, 0.5 and 0.38. Currently the price is below the 0.38 level it’s means our 0.23 level is accurate and a best resistance level for steem now.
Best trading strategy for Steen in this current situation.
I have find a 1:2 trade on steem. We will short steem if it touch our residence level at 0.2363, this will be our entry point. Our stoploss will be at o.245, and TP will be 0.216, it’s 1:2 trade. We will go with full risk management policy by allocating only 2% of our portfolio in this trade. For example 20 dollars only in 1000 dollars portfolio.
Breakout trading strategy means, waiting for the market to break key levels and take entry on the basis of it, i.e, support and resistance levels. Different tools can be used to find the real breakout of the market and trade base on it.
STEEM/USDT 4 hours chart
This is the perfect example of breakout trading strategy. Price has broken our support (0.236) in downward direction. We have waited the 4 hours candle to give closing below it. It gave closing below and we took entry on very next candle. Our entry point is 0.23, stoploss is 0.26 and Target is 0.178. It’s a 1:2 trade, means if you are welling to lose 5 dollars if stoploss get hitted, you will win 10 dollars if target get hitted.
long position breakout trade
This is a long position trade on STEEM/USDT on 4 hours time frame. The price has broken our resistance level of 0.236 in upside direction. We took entry on very next candle, our entry point is 0.24, stoploss is 0.21 and target is 0.30. This is a 1:3 trade.
Identifying Breakouts using Bollinger Bands (BB).
Bollinger band have three levels. Upper band, lower band and middle band. It’s best using strategy is, go for long if the price touch lower band (over sold region) at support level and go for short if price touches upper band at resistance level (over bought region).
In this chart lower Bollinger band has been touched by steem price at our strong support level 0.177. We have double confirmation here, we go for long trade with 1:3 and the target is hitted.
This is another trade using Bollinger band strategy. The price touch our Major resistance level, 0.30 and it touched the upper band too. We go for sell with 1:3 RR and the target got hitted here again.
Using Average True Range (ATR).
ATR is used to find volatility in the market. High ATR means market is highly volatile and low ATR means market is in ranging zone or consolidating. High ATR signifies high volatility and potential breakout momentum.
This is a highly volatile zone for where we can see many breakouts. The support and resistance are broken many times which indicates their is high volatility in the market. Currently market is an ranging zone with normal volatility.
Periods of extreme volatility often creates panic in the market. Most of the traders avoid trading in such period, because it is too much risky, most often it failed technical analysis. Spikes has been seen in the market which do not support resistance, support or trend line and most often the reasons are major news events or macroeconomic shifts. How can we adopt best strategies in a volatile market?
Adjustment of Proper Risk Management
Reduce position size to minimize the chances of significant lose. Must use a tight stoploss, in case of high spikes you get exit of the market with minimum lose. Always try to go with best Risk to Reward (RR) ratio in such a volatile market.
Adopt Flexible Trading Strategies
We need multiple confirmation if trading in a volatile market. For more confirmation we can use shorter time-frames for best entry zone. We can Employ scalping techniques or hedge positions with small amount.
Monitor Key Drivers of Volatility
Be aware of all the fundamentals in the market, e.g CPI report, US unemployment rate, or other geopolitical developments. Use sentiment analysis tools to monitor trader’s sentiment in the market. Be aware of false breakout. The best way of identifying fake breakout is to wait for the retracement.
Maintain Emotional Discipline
Stick to your plan, which will help you avoid making impulsive decisions. Give pause if you are in lose, don’t try to recover that lose, or else you will lose more money. Focus on your strategy not based on profit or lose, instead it should based on complete discipline.
Diversify and Hedge Your Portfolio
Spread your portfolio in different assets. Try to go for assets that are considered more strong, such as BTC, ETH, SOL, etc.
A volatile market greatly impact trader’s mind and psychology. It arise feeling of fear, greed and overconfidence, which greatly disturb their pre planned trading strategies. Most of traders take rational decision in volatile market, if they have week psychology. Let’s talk about some of it’s effects on traders minds in detail.
Effects of Volatility on Trader Psychology
Fear: Fear is of two types; one is FOMO; means fear of missing out. The traders fear if he could miss a great profit opportunity that’s why he take wrong entry. Second is simple fear and it arise when a trader see a huge lose. Trader get panic and close trade by not following the proper strategy, most often in wrong place.
Greed: Greed is another factor related to volatile market. The trader earn some money but he doesn’t close it’s position in greed of earning more and more, the market turn back and he earn no money. Second type of greed is a trader see a crypto coin ( i.e steem) pumping hard. He take entry even it’s already 50% pumped, he expect more pump, but it happen quite opposite to his believe, the market comes down and he get stuck.
Overconfidence: Success in volatile market make a trader overconfident. He then try to go with high position ( more dollars) ignoring risk management. When the market go against him he lose all his money in a matter of seconds.
Best ways to Maintain Emotional Discipline in High-Volatility Scenarios
Stick to a proper Trading Plan:
You should have your own trading strategy, and don’t violate it no matter what are the market conditions. For example you use only 1% of your portfolio, it should always be that amount, irrespective of market conditions.
Focus on Risk Management:
Mange proper risk before going for any trade. You should have RR at least 1:1. Your entry, SL and TP should be very much clear. Don’t exceed than 5% of your portfolio in any trade, try to keep it 1% or 2%.
Avoid Over trading:
You should have a profit target for everyday, once you achieve it, you should not trade anymore that day. Same should be the case for lose. Best thing is you can limit the number of trades per day.
Practice Mindfulness and Emotional Awareness:
Be mentally and psychologically fit and calm when you are trading. Try to identify emotional triggers (fear or greed) and if you feel the same, take pause from the market.
Use Technology and Automation:
We can use bots or algorithmic trading strategy. It will also help minimizing emotional based trading.
Set Realistic Expectations:
Always except what the market gives you. It’s not obvious that every single trade of yours will be in profit, some might be in lose too.
All pictures are taking screenshot from trading view site.
I would like to invite my friends @drhira, @m-fdo and @yahnel to share their participation.